Opinion
A165384
07-18-2023
APP ANNIE, INC., Plaintiff and Respondent, v. SEAKER & SONS, Defendant and Appellant.
NOT TO BE PUBLISHED
(City and County of San Francisco Super. Ct. No. CGC-21-589745)
HUMES, P.J.
After appellant Seaker &Sons lost an arbitration with respondent App Annie, Inc., the partnership filed a motion in the trial court to vacate the award based on alleged arbitrator misconduct. Relying on an unverified complaint purportedly filed by the arbitrator years before the arbitration, Seaker &Sons claimed that the arbitrator presented "knowingly false and misleading" information in his marketing materials. The trial court denied the motion. We affirm.
I. FACTUAL AND PROCEDURAL
BACKGROUND
App Annie provides mobile application data analytics. Seaker &Sons owns a building on Maiden Lane in San Francisco that previously housed the Gump's department store. The parties entered into an office lease dated December 27, 2019, for App Annie to lease around 26,000 square feet on the third and fourth floors of the building for a term of 86 months. App Annie spent $5.46 million on improvements. After the parties learned in September 2020 that the City of San Francisco considered the space zoned for retail rather than office use, App Annie sought to rescind the lease, and Seaker &Sons rejected the rescission.
The company is now known as Data.ai Inc. We refer to it as App Annie, consistent with the parties' briefing in the trial court and this court.
App Annie sued Seaker &Sons in February 2021 for rescission of contract, and the parties agreed later that year to binding arbitration to resolve their dispute. The parties initiated arbitration through JAMS, which provided them with five possible arbitrators whose resumes were available on the JAMS website. Following JAMS's "rank and strike process," JAMS appointed an arbitrator. According to an online biography later provided to the trial court, the selected arbitrator represented that he "ha[d] been a fulltime mediator and arbitrator since 2004." The arbitrator provided a disclosure checklist to the parties.
A two-day arbitration was held before the arbitrator. At no point during any of the proceedings (during a preliminary conference, at the arbitration, or at closing arguments) did any party raise any concerns about the arbitrator's competency, conduct, engagement, or health.
The arbitrator issued a 19-page final award on January 28, 2022. The arbitrator concluded that App Annie established it was entitled to rescind the parties' lease on grounds of mutual mistake. The arbitrator awarded App Annie around $6.6 million in damages, consisting of its security deposit, the amount it spent on tenant improvements, and money paid to a bank for a letter of credit. App Annie also was awarded prejudgment interest along with attorney fees and costs.
App Annie filed a petition in the trial court to confirm the arbitration award. The law firm that had represented Seaker &Sons in the arbitration informed the trial court that there was a dispute over who controlled Seaker &Sons, and the firm sought to be relieved as counsel. A new attorney substituted in to represent Seaker &Sons.
Seaker &Sons's new counsel filed a petition to vacate the arbitration award and opposition to the petition to confirm the award. Seaker &Sons contended that the arbitrator had lied about his qualifications as an arbitrator and "fail[ed] to disclose relevant facts about his past." It sought to vacate the award under Code of Civil Procedure section 1281.2, subdivisions (a)(2) (arbitrator's corruption), (a)(3) (arbitrator's misconduct substantially prejudicing a party), and (a)(6) (arbitrator's failure to disclose ground for disqualification).
All undesignated statutory references are to the Code of Civil Procedure.
In support of its petition to vacate, Seaker &Sons presented the 2018 JAMS announcement that the arbitrator was joining the organization. The announcement stated that the arbitrator had "15 years of experience as a full-time neutral." In an effort to show that this statement was inaccurate, Seaker &Sons presented an unverified complaint filed in April 2015 in Los Angeles Superior Court by a plaintiff with the same name as the arbitrator. Seaker &Sons asked that the trial court judicially notice the complaint. The plaintiff in that separate case sued a life insurance company for an alleged wrongful denial of disability insurance benefits. The complaint alleged that the plaintiff was owed insurance benefits because he had been diagnosed in 1999 with major depressive disorder and anxiety disorder, and at some point became "totally disabled due to a severe, debilitating, and treatmentresistant clinical depression." Seaker &Sons contended that the arbitrator lied that he had worked as a full-time arbitrator, and it claimed that the arbitrator wrongly failed to disclose his disability. App Annie countered that even if the allegations in the 2015 complaint were true (which it did not concede), they did not establish that the arbitrator lied since one can be considered a full-time neutral even if the person is "not in mediation or arbitration five days a week every week."
The trial court granted App Annie's petition to confirm the arbitration award and denied Seaker &Sons's petition to vacate. In its summary order, the court made no express findings regarding Seaker &Sons's allegations that the arbitrator engaged in wrongdoing, and it did not rule on the partnership's request to judicially notice the 2015 complaint. The court then entered judgment on the award.
II. DISCUSSION
A. General Principles and the Standard of Review.
"The California Arbitration Act (§ 1280 et seq.) 'represents a comprehensive statutory scheme regulating private arbitration in this state.' [Citation.] The statutory scheme reflects a 'strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.' [Citation.] '[I]t is the general rule that parties to a private arbitration impliedly agree that the arbitrator's decision will be both binding and final.'" (Haworth v. Superior Court (2010) 50 Cal.4th 372, 380 (Haworth).) "Generally, in the absence of a specific agreement by the parties to the contrary, a court may not review the merits of an arbitration award. [Citation.] Although the parties to an arbitration agreement accept some risk of an erroneous decision by the arbitrator, 'the Legislature has reduced the risk to the parties of such a decision by providing for judicial review in circumstances involving serious problems with the award itself, or with the fairness of the arbitration process.'" (Ibid.)
The grounds to vacate an arbitration award are set forth in section 1286.2. Absent an agreement to the contrary, these statutory grounds are the exclusive grounds to seek vacation of an arbitration award. (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1340; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 27-28.)
The party moving to vacate an arbitration award has the burden of establishing that the arbitrator committed error. (Comerica Bank v. Howsam (2012) 208 Cal.App.4th 790, 826.) "Every reasonable intendment is indulged to give effect to arbitration proceedings; the burden is on the party attacking the award to affirmatively establish the existence of error by a proper record." (Lopes v. Millsap (1992) 6 Cal.App.4th 1679, 1685.) On review of a trial court's ruling declining to vacate an award, the appellate court determines "whether appellant has demonstrated by [the] record that the trial court erred in refusing to vacate the award. There is a presumption favoring the validity of the award, and appellant bears the burden of establishing [its] claim of invalidity." (Betz v. Pankow (1993) 16 Cal.App.4th 919, 923 (Betz).)
Appellate courts generally review superior court orders vacating a final arbitration award de novo. (See Malek v. Blue Cross of California (2004) 121 Cal.App.4th 44, 55-56.) A claim that an arbitrator failed to disclose a ground for disqualification, in particular, involves a mixed question of law and fact. (Haworth, supra, 50 Cal.4th at p. 384.) Such a claim is reviewed de novo when the facts are not in dispute. (Id. at p. 385.) But to the extent that the trial court makes findings of fact in confirming an arbitration award, this court must affirm if the findings are supported by substantial evidence. (Cooper v. Lavely &Singer Professional Corp. (2014) 230 Cal.App.4th 1, 1112.) The appellate court "must presume the court found every fact and drew every permissible inference necessary to support its judgment, and defer to its determination of credibility of the witnesses and the weight of the evidence." (Betz, supra, 16 Cal.App.4th at p. 923.)
B. The Evidence Did Not Compel a Finding that the Arbitrator's Conduct Constituted Corruption.
Seaker &Sons first renews its argument that the arbitration award must be vacated because the arbitrator's conduct "constitute[d] 'corruption.'" (§ 1286.2, subd. (a)(2) [court shall vacate award if "[t]here was corruption in any of the arbitrators"].) We are not persuaded. Seaker &Sons's argument is premised on the allegation that the arbitrator "l[ied] about his experience in business and as an ADR neutral" for financial gain (i.e., "to attract more business and to get himself appointed as a well-paid arbitrator"). According to Seaker &Sons, the arbitrator "falsely claim[ed] to have far more experience as a neutral, and far deeper experience in finance." Seaker &Sons uses adjectives such as" 'wrongful, immoral, depraved, [and] evil'" to describe the arbitrator's alleged "[d]ishonesty" and "lying."
Seaker &Sons's allegations involve both undisputed and disputed facts. It is undisputed that the arbitrator represented that he "ha[d] been a full-time mediator and arbitrator since 2004." But whether the arbitrator actually was a full-time mediator and arbitrator during that period was disputed. As App Annie put it below, "Many JAMS neutrals are not in mediation or arbitration five days a week every week, but that does not mean they are lying if they say they are a 'full time neutral.'" We presume that the trial court did not credit Seaker &Sons's evidence, and we cannot conclude that the court erred in its determination that the partnership did not meet its burden.
The material Seaker &Sons presented to the trial court to show the arbitrator's alleged corruption consisted mainly of the unverified 2015 complaint. As we have mentioned, that complaint was filed by a plaintiff with the same name as the arbitrator seeking disability insurance benefits.The trial court was not required to accept and credit this proffered evidence, and since the court never judicially noticed the complaint we cannot assume that it even considered the pleading. As App Annie notes, a party may not use statements in its own unverified complaint as evidence. (Gabrielle A. v. County of Orange (2017) 10 Cal.App.5th 1268, 1271, fn. 1; Supervalu, Inc. v. Wexford Underwriting Managers, Inc. (2009) 175 Cal.App.4th 64, 69, fn. 1.) Here, the statements are contained in a complaint wholly unrelated to the subject matter of this litigation. Although we previously took judicial notice of the complaint by separate order, the truthfulness of the complaint's allegations are not subject to judicial notice. (Arcadians for Environmental Preservation v. City of Arcadia (2023) 88 Cal.App.5th 418, 440 [existence of lawsuits may be subject to judicial notice as court records, but "the truth of the allegations and evidence in them is not"]; Day v. Sharp (1975) 50 Cal.App.3d 904, 914 [court may take judicial notice of existence of documents in a court file, but can take judicial notice of the truth of facts asserted only in documents such as orders, findings of fact and conclusions of law, and judgments].)
App Annie assumes, but does not concede, that the arbitrator and the plaintiff is the same person. Still, it points out that Seaker & Sons presented no evidence proving identicality.
Seaker & Sons also sought judicial notice in this court of a declaration filed in the case as well as declarations in divorce proceedings involving a man with the same name as the arbitrator. These filings were not before the trial court. We denied by separate order Seaker & Sons's request to judicially notice them. Reviewing courts generally decline to take judicial notice of matters not presented to the trial court absent exceptional circumstances. (Haworth, supra, 50 Cal.4th at p. 379, fn. 2.) Seaker & Sons has identified no such circumstances.
Furthermore, even if the 2015 complaint's allegations are taken at face value, the trial court was not required to conclude that the arbitrator lied. The complaint alleged that when the plaintiff purchased the life insurance policy in 1993, he was a practicing attorney. He stopped practicing law in 1994 to become an investment banker, and he ultimately became the chief executive officer of his own investment company. According to the complaint, the work was "extremely demanding." In 1999, the plaintiff was diagnosed with major depressive disorder and anxiety disorder, which caused him to suffer insomnia, loss of concentration, and difficulty performing basic tasks. Depression had "severe and unrelenting" effects on the plaintiff's "emotional, cognitive, and physical" functions, but he continued to work until he "took a severe downturn" in March 2002. Two years later he filed a disability claim, which was approved, and he began receiving monthly payments.
According to the complaint, around 2011, the plaintiff began volunteering at a local court performing mediation services. At first he could manage only three to four hours each week. He created a website to promote his services outside of a court setting. He did "a small number of mediations" but his condition continued to affect his ability to work, and in January 2015 he had to miss three courthouse mediations because of it. As of the date of the filing of the complaint, the plaintiff could not work for longer than three or four hours each day, and he could "rarely manage to work on consecutive days, or in the mornings." After the plaintiff disclosed to his insurance company that he started to do mediations, his insurance company investigated whether it should stop disability payments. An investigator with the insurance company opined that the plaintiff could make a lot of money as a mediator even though the plaintiff "explained how little he actually worked." The complaint stated that the plaintiff struggled to work 10 hours each week, and that he was "unable to hold fulltime, or even regular part-time, employment."
Seaker &Sons charges that these allegations directly contradict the arbitrator's biography stating he had worked "full time" as an arbitrator. The partnership also contends that the arbitrator falsely claimed to have a "far deeper experience in finance" than he really possessed. It claims that the arbitrator was "relative[ly] inexperience[d]," with "at most six years as a fulltime neutral and four years as a small-time stockbroker." Seaker &Sons presents these arguments as if it had conclusively established those facts, but it did not. We cannot conclude that the trial court was required to accept and credit Seaker &Sons's proffered evidence or that this evidence established the arbitrator's corruption. Even assuming the arbitrator and the plaintiff are the same person, the complaint mostly summarizes the time periods when the plaintiff was in contact with his insurance provider and does not read as a complete summary of his entire work history, though it does mention work as an arbitrator. Seaker &Sons asserts that the complaint "explains that [the arbitrator] had no business or professional pursuits at all between 2004 and 2011." But there is no specific citation to the complaint to support the assertion. Just because the complaint did not describe additional work, it does not prove that the plaintiff performed no such work.
As an action against an insurance company for failure to pay disability benefits, the complaint necessarily focuses on the plaintiff's struggles to maintain the work schedule he had when he took out a policy. According the complaint, the defendant insurance company contended that the plaintiff could return to his prior profession, which involved "working 10 hours a day, six days a week." Seaker &Sons presented no evidence on what working as a full-time arbitrator would entail, much less that it would mean working 60 hours each week. True, it provided the declaration of a proposed expert witness in arbitration. The proposed expert attested that if the representations that the arbitrator had 18 years' experience as an arbitrator/mediator along with a significant background in the financial-services industry were in fact false or misleading, the disclosure might have caused Seaker &Sons to prefer another arbitrator and thus would have prejudiced the partnership. But Seaker &Sons never conclusively established that the arbitrator in fact lied or provided materially misleading information. While the partnership provided unverified information that might certainly lead reasonable minds to question whether the plaintiff had been working full time as an arbitrator, it did not present evidence that compelled a finding in its favor.
App Annie objected to the proposed expert's declaration on multiple grounds, including that there was no foundation for the expert's opinion since the assumption that the arbitrator made a false statement was speculative. The trial court's order did not rule on the admissibility of the declaration.
There appears to be little published caselaw on vacating an arbitration award based on the corruption of an arbitrator. (§ 1286.2, subd. (a)(2); e.g., Michael v. Aetna Life &Casualty Ins. Co. (2001) 88 Cal.App.4th 925, 937-938 [arbitrator's failure to make required disclosure may constitute "corruption" for purposes of setting aside arbitration award].) Seaker &Sons relies on authority that provides general definitions of corruption, but the partnership does not point to any cases where comparable behavior was deemed to be corrupt, let alone rise to the level where it justified vacating an arbitration award. In Adams v. Commission on Judicial Performance (1994) 8 Cal.4th 630, for example, a superior court judge was accused of receiving discounts on cars and repairs from a litigant who the judge had awarded a substantial monetary judgment. (Id. at pp. 638, 641.) When the Commission on Judicial Performance started investigating these and other misconduct allegations, the judge "made material omissions and misrepresentations and demonstrated a lack of candor." (Id. at pp. 643-644.) When asked to respond to allegations against him, the judge represented that he received a $150 sweater as a gift from a personal friend, but the judge failed to disclose that the person also had appeared before the judge and been awarded a $5 million judgment by him. (Id. at p. 644.) The judge's attorney conveyed to the commission that the judge had written a check to a car dealership, a false statement since the check was in fact made payable to the attorney who represented the owner of the dealership. (Id. at pp. 641, 644.) And when the commission asked the judge about whether the attorney had appeared before him, the judge falsely responded that the attorney had last appeared before him in 1984 but failed to mention several other cases, including the one where the judge had awarded the car dealership a substantial judgment. (Id. at pp. 644-645.) The Supreme Court concluded that the responses were "false, inaccurate, and misleading in numerous, material respects" and involved "moral turpitude, dishonesty, and corruption." (Id. at p. 665.) Unlike the situation here, the statements at issue in Adams were made in the course of a formal investigation and found to be verifiably false.
Likewise in Doan v. Commission on Judicial Performance (1995) 11 Cal.4th 294, 305-306, also cited by Seaker &Sons, the commission filed disciplinary charges against a trial court judge who failed to disclose income or loans, including a loan from her court staff. After she was admonished, the judge later borrowed money from a police officer who served as a liaison with her court and insisted there be no written evidence of the loan, then failed to report the loan. (Id. at p. 306.) The judge also was accused of failing to list all creditors when she and her husband filed for bankruptcy. (Ibid.) As Seaker &Sons notes, these and other acts were found to be signs of "moral turpitude, dishonesty, and corruption." (Id. at p. 339.) But again, the arbitrator here was not found to have made verifiably false statements.
We likewise reject Seaker &Sons's comparison of this case to Move, Inc. v. Citigroup Global Markets, Inc. (9th Cir. 2016) 840 F.3d 1152 (Move). In that case, one arbitrator of a three-member panel was a non-attorney who impersonated a retired attorney, and there was no real dispute that the arbitrator had deceived the litigants. (Id. at pp. 1154-1155, 1158.) The main question was whether the arbitrator's "purposeful and material deception" deprived the litigants of a fundamentally fair hearing under 9 U.S.C. section 10(a)(3), regarding the misbehavior of an arbitrator. (Move at p. 1158.) Here, the trial court found no such purposeful and material deception, and we are not compelled to conclude otherwise.
C. The Evidence Did Not Compel a Finding that the Arbitrator Failed to Make a Required Disclosure.
Seaker &Sons next renews its argument that the arbitration award should have been vacated because the arbitrator "failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware." (See § 1286.2, subd. (a)(6)(A).) We again are not persuaded that the trial court was required to accept and credit Seaker &Sons's proffered evidence and that it established that the arbitrator failed to disclose a ground for disqualification.
The California Arbitration Act requires arbitrators to disclose to parties any grounds for disqualification. (Haworth, supra, 50 Cal.4th at p. 381.) When a person is to serve as a neutral arbitrator, the proposed neutral arbitrator "shall disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial." (§ 1281.9, subd. (a).) These include any matters that must be disclosed under the ethics standards for neutral arbitrators adopted by the Judicial Council, as well as specified relationships between the arbitrator and the parties to the arbitration, any attorney-client relationship the proposed arbitrator has or had with any party or a party's attorney, or any professional or significant personal relationship that the arbitrator or immediate family members have or had with any party or a party's attorney. (§ 1281.9, subd. (a)(2)-(a)(6); see Cal. Rules of Court, Ethics Stds. for Neutral Arbitrators in Contractual Arbitration (Ethics Standards).) An arbitrator also must disclose the existence of any ground for the disqualification of a judge set forth in section 170.1. (§ 1281.9, subd. (a)(1).)
Seaker &Sons contends that the arbitrator "failed to disclose that he lied about his experience in the biography and other marketing materials posted on the JAMS website to which JAMS directed litigants during the arbitrator selection process." Like its argument that the arbitrator was corrupt, the partnership's argument is based on the premise that the arbitrator was found conclusively to have lied. But as we have explained, the trial court was not required to accept and credit Seaker &Sons's proffered evidence.
As with its corruption argument, Seaker &Sons provides general definitions of terms such as "honesty" and "integrity" and stresses what important qualities these are in an arbitrator. It claims that the arbitrator violated Ethics Standard 17, which provides that "[a]n arbitrator must be truthful and accurate in marketing his or her services." But the partnership does not provide any authority where a court set aside an arbitration award under similar circumstances. It cites Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 59, for the proposition that "deceit undermines the administration of justice." There, the plaintiffs sued an attorney who had represented an insurance company in the plaintiffs' previous construction lawsuit. (Id. at pp. 60, 66.) They alleged that the attorney had provided the plaintiffs false information about whether the insurance company had agreed to indemnify claims, with the intent of inducing the plaintiffs to forgo full payment on the judgment they secured. (Id. at p. 66.) The Shafer court held that it was error to sustain defendants' demurrer since the attorney owed the plaintiffs a duty not to make fraudulent statements about the insurance coverage provided by his client. (Id. at p. 67.) Because the case was decided on a demurrer, the court treated as true the allegation that the attorney made a false statement. (Ibid.) Here, no such falsehood was conclusively established. For the same reason, we also reject Seaker &Sons's related argument that the arbitrator "violated his duty of candor as a lawyer." (Formatting omitted.)
Seaker &Sons argues that the arbitrator's alleged failure to disclose his dishonesty was disqualifying under Haworth, supra, 50 Cal.4th 372, but we are not persuaded. In Haworth, a former superior court judge served as a neutral arbitrator in a woman's medical malpractice case regarding cosmetic lip surgery. (Id. at pp. 377-378.) The retired judge was later accused of having failing to disclose that 10 years before serving as a neutral in the case, he had been publicly censured for his conduct toward and statements to court employees. (Id. at p. 377.) Those statements "created 'an overall courtroom environment where discussion of sex and improper ethnic and racial comments were customary.'" (Ibid., quoting In re Gordon (1996) 13 Cal.4th 472, 474.) Our Supreme Court concluded that the arbitrator was not required to disclose the public censure. (Haworth at p. 377.) The court noted that neither the California Arbitration Act nor the Ethics Standards required disclosure of any form of professional discipline. (Id. at p. 381.) The court thus analyzed whether the retired judge was bound by the general requirement that an arbitrator disclose any subject that could reasonably create the appearance of partiality. (Id. at pp. 381, 388-389.) The court concluded that "nothing in the public censure would suggest to a reasonable person that [the retired judge who served as an arbitrator] could not be fair to female litigants, either generally or in the context of an action such as the one now before us." (Id. at p. 390.)
Seaker &Sons contends that whereas the public censure at issue in Haworth "was only tangentially relevant to the arbitrated medical malpractice dispute," here "what [the arbitrator] failed to disclose . . . would be a ground for disqualification in any arbitration on any set of facts." That is because, according to Seaker &Sons, the arbitrator's "failure to disclose his falsified promotional materials-and the falsification itself-was indisputably intended to mislead parties seeking to appoint a seasoned and honest arbitrator, including the parties in this case, and thus to harm them by depriving them of the opportunity to make an informed choice among prospective arbitrators." Again, this sweeping statement is premised on the assumption that the arbitrator was found to have "falsified" his background, when no such finding has been made.
D. Seaker &Sons Did Not Establish that Its Rights Were Substantially Prejudiced by any Arbitrator Misconduct.
Finally, we reject Seaker &Sons's argument that the arbitration award should be vacated because the partnership's rights "were substantially prejudiced by [the arbitrator's] misconduct." (§ 1286.2, subd. (a)(3).) In support of its argument that this ground for vacatur was established, the partnership mostly advances arguments that we already have rejected: namely, that Move, supra, 840 F.3d 1152 is "directly on point," and that the arbitrator was found to have used deceptive means to get the parties to select him. Because the trial court was not required to have found that such dishonesty was established, we need not address Seaker &Sons's argument that there is a "reasonable probability" that "another arbitrator would have reached a different result."
III. DISPOSITION
The judgment is affirmed. Respondent shall recover its costs on appeal.
WE CONCUR: BANKE, J., BOWEN, J. [*]